Are investment company insiders calling the bottom for one sector?

Of the 14 transactions that made it onto broker Liberum’s list of investment company insider buys for May, half were for funds that came from the same sector. What might we be able to learn from them?

By Frank Buhagiar

Are investment company insiders calling the bottom for one sector?
Of the 14 transactions that made it onto broker Liberum’s list of investment company insider buys for May, half were for funds that came from the same sector. What might we be able to learn from them ?

By
Frank Buhagiar

News of insiders snapping up shares in their own funds can serve as a useful (and comforting) measure of the confidence that the individuals concerned have in a fund’s prospects and the value of the underlying portfolio. For insiders, read directors and management / advisory teams of the investment companies . Arguably, when insiders buy shares in the companies they manage or oversee, a more powerful message is sent to the market compared to a paragraph or two in a results statement from the Chair.

Liberum regularly follows insider share purchase announcements released by London’s investment companies. The broker compiles and publishes a list of insider buys of over £10,000 that have taken place over the course of each calendar month. Sometimes, the list includes funds from a diverse range of sectors. Other times, the list can contain several funds that herald from the same sector, so many that there’s enough of a hint of a pattern to prompt further investigation. And that’s precisely what happened with Liberum’s list of insider buys for the month of May (see below). As can be seen, one sector stands out:

Out of the 14 funds in the table, half come from the property sector, an area of the market that has been among the hardest hit these past few years. Interest rates at multi-decade highs and an uncertain macroeconomic environment have both weighed heavily on sentiment, leading to concerns over valuations, share price weakness and hefty discounts to net assets.

But with directors and investment managers acquiring shares in seven different property companies during May, perhaps the insiders are collectively sending out a message that a bottom in the cycle is in sight. Certainly, based on the M&A activity seen in the sector in recent months as well as the Special Opportunities REIT IPO (even though it was eventually pulled in June), a case can be made that trade buyers, if not investors, are calling the bottom. So, do the actions of the insiders point to the same conclusion? A host of insiders taking advantage of discounts to buy shares would suggest they too are seeing light at the end of the tunnel. But is all as it seems?

Not all insider buys are equal

Some share acquisitions are linked to investment manager remuneration. That was the case with Primary Health Properties’ (PHP) 886,824 insider buy of 9 May 2024. According to the company’s announcement, these were awarded as nil-cost options under PHP’s 2021 Long-term Incentive Plan to a Person Discharging Managerial Responsibilities (PDMR). That person is CEO, Mark Davies. While the award does show that Mr Davies has skin in the game, it’s not quite the same as an insider dipping into their own pockets to acquire shares in their fund.

Tritax EuroBox’s (BOXE) 118,832 insider purchase relates to an issue of equity that falls under the fund’s investment management fee arrangements. As announced on 16 May 2024, BOXE acquired the shares in the market ‘in accordance with the terms of the Investment Management Agreement between the Company and Tritax Management LLP dated 14 June 2018 (as amended), pursuant to which 10 per cent. of the management fee (net of any applicable tax) shall be applied to subscribing for or acquiring ordinary shares of the Company.’ Investment managers being issued with equity in lieu of fees not to be scoffed at but, as with PHP, not wholly relevant to this exercise which is looking to identify insiders taking advantage of discounts on offer.

On 22 May 2024, the property development and investment group Conygar Investments (CIC) announced that Non-executive Chairman, Nigel Hamway, and CEO, Robert Ware, purchased 20,000 and 29,050 ordinary shares respectively at 79.7p per share. The day before, CIC announced that Mr Ware had acquired 10,000 shares at 80p a share on 17 May 2024. The latest purchases bring Mr Hamway’s holding up to 1,276,700 ordinary shares or 2.14% of the issued share capital of the company and Mr Ware’s up to 4,856,050 or 8.14% of the company.

In CIC’s latest interims that were published on 16 May 2024, net asset value per share stood at 153p as at 31 March 2024. Those insider buys executed at a near 50% discount to net assets. Looks like we have our first bargain hunters. It’s a similar story with abrdn Property Income (API). The Board recently secured shareholder approval to wind the company down but, on 15 May 2024, Non-executive Director, Mike Balfour, purchased 125,000 shares at 52.57p a pop. 31 May 2024 fellow Director, Michael Bane, bought 66,700 shares at 53p a share. At the time the shares were trading at a 30% discount to net assets, a level they currently trade at today. Another one for the insider bargain-buy camp.

Meanwhile, GP surgery landlord Assura’s NAV per share stood at 49.3p as at the 31 March 2024, the company’s year end. That’s comfortably higher than the 43p per share CEO, Jonathan Murphy, paid for the 198,975 shares he acquired on 21 May 2024 and the 42.5p per share CFO, Jayne Cottam, paid for the 58,800 shares she bought on the same day. Cottam didn’t stop there, acquiring a further 54,700 shares at 40.23p each on 29 May 2024. Assura, another bargain buy.

What’s the story with Supermarket Income Reit (SUPR)? On 20 May 2024, the company announced investment adviser, Benedict Green, and persons closely connected to him acquired between them a total of 330,179 SUPR shares for a total consideration of £250,010.69 on 16 May 2024. By close of play on 16 May, the shares were trading at a 15% discount to net assets. Enough of a discount there to count as a bargain buy.

That leaves Tritax Big Box (BBOX). 20 May 2024, BBOX announced a host of directors and other insiders between them bought a total of 333,458 shares in the company at around £1.67 a share. In terms of discounts, the transactions took place on 17 May 2024, when the share price closed at a 9.18% discount to net assets. Another set of directors picking up shares in their fund at a discount to net assets.

Not all about the discounts

Of course, there are a host of reasons why an insider chooses to acquire shares in the fund they are connected to at a specific point in time. The company may have, for example, been in a closed period either because results were due, as in the case of Assura, or a transaction was live such as BBOX’s acquisition of UK Commercial Property. The insider would therefore not have been able to acquire shares until the closed period was over.

Even so, surely it’s not a stretch to believe that, like the rest of us, insiders like to bag a bargain or two? And with shares trading at what are still wide discounts to net assets and with the next move in interest rates (arguably the main culprit behind those wide discounts) expected to be a cut, perhaps the insiders are indeed calling the bottom of the real estate cycle. Or at the very least, the bottom is close enough to tempt them to dip into their pockets and buy shares in their respective funds.